Gold hoards in ETFs bleed

The demand for gold remained strong in Asian countries during 2013. The rise in gold demand among Asian countries, especially China and India, played a significant role in determining international gold prices. However, the heavy selling of gold hoards in gold backed Exchange Traded Funds (ETFs) is likely to offset the rising gold demand in the region.

According to World Gold Council (WGC), demand for gold jewelry, coins and bars continued to rise sharply in 2013. The Chinese gold demand surged by 32% over the previous year. India’s gold consumption grew 13% during the year.

However, gold as an investment lost its sheen. Leading gold ETFs reported heavy selling pressure during the year as investors rushed to get out of their holdings following poor outlook on the metal. The trend seems to continue in 2014 as well with SPDR Gold reporting a year-to-date drop of 0.3% to 798 tonnes.

The total gold demand fell sharply during 2013 to 3,574 tonnes, dragged down by sharp fall in gold ETF demand. The huge rise in demand for bars, coins and jewelry was offset by the outflows from gold investments.

The Asian gold demand may play a crucial role in determining gold prices in 2014 too. However there are fears that the sell-off of gold ETF holdings may negate the positive effects of rising Asian gold demand. In that case, the global demand for gold would remain subdued, which in turn may keep the gold prices under pressure.